SEO and the Stock Market: How to Profit from Google Penalties

This article was originally published on our old domain, ViperChill.com, on September 12th, 2014. It’s an interesting topic and one we would love to revisit in the future.

We all know that Google updates can be highly frustrating, especially when Google are never forthcoming about exactly what changed and what you can do about it if you feel you were unfairly penalised. For some though, Google changes can slice millions of dollars off the valuation of your company. When Panda 4.0 was rolled out on May 22nd, Retail Me Not’s stock dropped 10% or in other words, Google’s change helped to wipe $170 million from their market cap in a single day.

While eBay also took a hit on the same day, estimated to have lost rankings for up to 80% of long-tail keywords, their stock didn’t take much of a hit. This is likely because Paypal is the big driver in eBay’s stock price. The Yellow Pages however, trading as Yellow Media on the stock market, were estimated to have lost around 20% of their organic search traffic. Since a high in April their stock has dropped 29%. What if you could predict Google hitting other companies hard? Could you get rich trading their stock? Let’s find out…

Finding Publicly Traded Companies That Are Highly-Reliant on Google

The first thing we need to do is find companies which make money primarily via a website, are listed on the stock market, and receive a large portion of their website traffic from search engines (such as Google). The first place I decided to start was to look at companies that have IPO’d or are expected to IPO in 2014. I’m primarily looking at companies in the “tech” field because they’re more likely to be companies that care about search engine traffic.

Here’s a list of businesses I found which have IPO (Initial Public Offering) hype around them for 2014.

Airbnb

Airwatch

AppNexus

Automattic

Box

Coupons.com

Deem

Dropbox

Evernote

Fanatics

Gilt

Good Technology

GoPro

Jawbone

LendingClub

MongoDB

Palantir Technologies

Pinterest

Pivotal

Pure Storage

Snapchat

Space Exploration Technologies

Square

SurveyMonkey

Uber

Vice

The companies in bold are the ones I will assume receive a large portion of their website traffic from Google. I don’t know that for certain though without doing some further research (I’m writing this sentence prior to having looked into each of them). While I don’t know every company on this list, their names tend to give away whether or not they’re likely to be heavily reliant on traffic from Google.

The next step is to look at the companies in more detail to see if they do actually get a large portion of their traffic from search engines. Unfortunately there’s no way to sneak into their Google Analytics account so we have to use estimations from other tools. The three tools I’m using here are SimilarWeb, Alexa and SEMRush.

AirBNB

SimilarWeb: 18.57% of traffic from search

Alexa: 8.7% of traffic from search

SEMRush: 685,000 monthly visits from search

These numbers are honestly quite a bit smaller than I would expect but still a solid portion of their overall traffic numbers. I would guess this is something they’ll be looking to increase over the coming years so this is still one company I would be watching for any volatility in the SERP’s.

Coupons.com

SimilarWeb: 41.64% of traffic from search

Alexa: 13.8% of traffic from search

SEMRush: 7.9 million monthly visits from search

Now this is the type of website you want to be watching. They have a huge reliance on search traffic (I would trust Similar Web here far more than Alexa due to the nature of their industry) and they’re in a field which has already seen a rival – Retail Me Not – lose substantial traffic after Google updates.

Pinterest

SimilarWeb: 28.54% of traffic from search

Alexa: 8.9% of traffic from search

SEMRush: 85.7 million monthly visits from search

I often see Pinterest in search results and with all that user generated content you can only imagine how many long-tail keyphrases they must be ranking for. The SEMRush stat there gives you a good idea of that number. The company have not filed for an IPO yet but the rumors continue to swirl that one is imminent.

Survey Monkey

SimilarWeb: 8.02% of traffic from search

Alexa: 5% of traffic from search

SEMRush: 85.7 million monthly visits from search

While they are also not on the stock market yet I thought this would be an interesting one to look at. It seems like my guess was wrong though and Survey Monkey don’t rely on getting as many leads via search as I initially presumed.

This wouldn’t be much of a blog post if I only had a few examples so I decided to look further back to 2013 and beyond. This search actually became very frustrating because ‘tech’ can be anything from pharmacuetical companies to people securing private internet networks. These companies are obviously not going to be too bothered by Google updates.

I needed publicly traded companies which are the kind that TechCrunch would blog about.

Then I had an idea. Just search TechCrunch for sites that have or are looking to IPO. With a simplyeGoogle site: search we get back a lot of data.

As you can see, this pulled back thousands of results. Below I’m picking out some that I feel would be reliant at least in some part on search traffic. Again, I’m writing this sentence before actually looking into the companies.

Zalando

SimilarWeb: 36.16% of traffic from search

Alexa: 20.60% of traffic from search

SEMRush: 8.1 million monthly visits from search

This one is especially interesting to me because they’re reliant on rankings across many different websites. Above I’ve highlighted the stats for their .de German-focused site but they’re also running a .co.uk version and even a .pl version of their site. Even Alexa pips them as having a large portion of search traffic so this is another one that I would definitely keep an eye on.

They’re expected to IPO before the end of the year.

Alibaba

SimilarWeb: 31.93% of traffic from search

Alexa: 13.20% of traffic from search

SEMRush: 1 million monthly visits from search

Expected to be the biggest IPO ever in the tech world, the Chinese ecommerce Titan is hoping to raise up to $21.1bn. While their brand name holds a lot of weight, they could still be affected to any big changes in Google’s and Baidu’s algorithm.

Jumei

SimilarWeb: 25.90% of traffic from search

Alexa: 8.3% of traffic from search

SEMRush: No data for Google China

Though a Chinese fashion portal, Jumei opted to file their $400m IPO in the US. They’re another company that is increasingly reliant on traffic from both Baidu and Google to continue their huge growth.

HomeShop18

SimilarWeb: 55.90% of traffic from search

Alexa: 16.3% of traffic from search

SEMRush: No data for Google India

This is the highest percentage of search traffic we’ve seen from SimilarWeb yet. Homeshop 18 are an Indian online retail store hoping to IPO on the NASDAQ later this year. Any changes in their Google rankings would surely have a big impact on their stock price.

3 Listed Companies with more than 50% Search Traffic

I wasn’t planning on making a separate section for some listings but the most recent ones I’ve brought up have had far better stats than those further up the post so I wanted to highlight them and the kind of potential available. We’ve already found a great opportunity with Coupons.com but there are many, many more to be unveiled.

Yelp

SimilarWeb: 67.33% of traffic from search

Alexa: 31.10% of traffic from search

SEMRush: 111 million monthly visitors from search

Yelp seems to get more traffic from search than any other website I’ve checked. This doesn’t surprise me since they thrive on review search terms around their brand. They’ve had their own public battles with Google so any fluctuations wouldn’t be new to them.

Trulia

SimilarWeb: 49.56% of traffic from search

Alexa: 27.10% of traffic from search

SEMRush: 6.7 million monthly visitors from search

The Trulia stock surged recently due to rumors of a potential acquisition by Zillow. Whatever happens there, the Trulia stock is definitely one to watch when it comes to how well they’re performing in Google. The real estate website generates a huge chunk of traffic from search (that’s the second highest I’ve seen Alexa yet) and clearly adds to their bottom line.

AngiesList

SimilarWeb: 53.07% of traffic from search

Alexa: 26.80% of traffic from search

SEMRush: 1.6 million monthly visitors from search

With over 65 million pages indexed in Google, AngiesList tries to unite quality service professionals with those looking for specialists in a particular field. There’s a lot of duplication going on in their title tags and meta descriptions but we’ll leave that for another day.

This is just a tiny sampling of the hundreds if not thousands of companies to focus on who rely heavily on performing well in Google. I would recommend similar “site: searches” for Mashable, The Next Web and other startup-related blogs to find even more examples you can follow.

How Would a Company Get Penalized?

The most obvious answer would be that they are caught breaking the Google Guidelines and are penalised as such. However, it’s also very clear that a lot of Google upates don’t always make sense as to why some people “win” and some “lose”.

When I wrote about RetailMeNot in my “How to Build a Billion Dollar SEO Empire” blog post I covered some of their less than favourable SEO practices but concluded my post saying they’ve cleaned up their act and they deserve to rank for the terms they rank for.

I was actually surprised that a Google update affected their rankings (and their stock price) so heavily.

Another company I’ve blogged about, Wix.com, are clearly buying paid links around the web. If Google want to ever make an example of them that could affect their stock. Around 20% of their traffic currently comes from search engines.

I think the smartest strategy to follow if you play this game is to pick companies you want to track and monitor the big Google changes.

Of course, there’s also another option that is less than ethical…

Could I Help to Get a Company Penalised If I Tried?

One angle I want to want to cover is my own ability (or even yours) in getting Google to consider penalising a company.

Now, as I’ve stated many, many times before, I don’t want anything I write here to have an affect on any company. I write about SEO and various company tactics in order to educate, not expose or hopefully negatively impact any company. I have never seen anyone get “hit” as a result of my posts which is why I’m comfortable writing them.

That isn’t to say that Google don’t use blog posts as a nudge to penalise websites for breaking their guidelines, however. Earlier this year Rap Genius were completely removed from Google’s index for performing shady link building practices. Ironically this was only discovered when an unknown blogger, who had never previously written about marketing or SEO covered their tactics.

This person received 94 comments on that post, yet in all previous posts (and those since the expose) I can not find any blog posts with even a single comment on them. This was not some huge blogger with a loyal audience. He simply reached the right one or two people who spread the word (later reaching Hacker News) and it prompted Google to take action. While they are not a publicly traded company, they have received $15M in investment.

It’s not just prompting Google to make changes that can affect a companies stock via blogging, of course. Back in 2007 Engadget reported that Apple’s next version of OSX and the much anticipated iPhone were going to be delayed. In less than an hour Apple’s stock dropped 2.2% which equated to four billion dollars.

It turned out that Engadget had reacted to a spoof email which appeared to be sent from inside Apple. They quickly had to update their story to the headline: “False Alarm: iPhone NOT delayed until October”.

Before I continue I want to say that I’m not advocating you attempt to out companies in order to affect their stock market pricing. However, certain rumors I’ve heard for a few years do suggest that there are people who partake in this exact strategy.

After all, people will do a lot of shady things when there’s a LOT of money to be made.

Since Yelp received the most search traffic out of any website and their search business really could be affected at any time (Google tried and failed to purchase them for $500M), I think their case is the most interesting.

In the most recent Google Pigeon update Yelp actually benefited from the changes, but that doesn’t mean future updates will also be in their favour.

In fact, there are a number of search queries where Yelp probably shouldn’t be getting so much visibility.

Barry Schwartz pointed out this search result 11 months ago and it’s still the same for me today.

This is obviously a result which is not great for the end user. Surely it would be better to have a more diverse search page.

Not to mention, they’re violating one of the sections of the Google Webmaster Guidelines that has been in place since 2007:

Yelp are under no illusion that they owe a large part of their success to the traffic they are able to get from Google.

Their CEO quoted as saying, “Google’s position is that we can take ourselves out of its search index if we don’t want them to use our reviews on Places…. But that is not an option for us, and other sites like us – such as TripAdvisor – as we get a large volume of our traffic via Google search.”

I could easily just take this one example – Yelp having their search results indexed – and try to get this featured on even more blogs to get the attention of Google employees that could do something about it. I could:

Contact known members of Google’s web spam team via their personal email (they aren’t hard to find)

Anonymously prompt Barry to do an update on the post (he’s always looking for new content)

Create a blog post targeting Yelp and how they’re breaking guidelines

Send “tips” to other sites like Search Engine Land, Search Engine Journal and others to hopefully highlight their tactics

Try and get some of the coverage featured on Hacker News, which resulted in the downfall of Rap Genius and other brands

I’m just throwing the ideas out there because I think it makes for an interesting discussion. Again, I wouldn’t personally go and do any of these things. Of course, that doesn’t stop others from trying to do the same.

Monitoring Companies to See If Their Search Traffic Takes a Hit

Now that you know what I would look for, it’s time to look at how you would monitor if a company were negatively affected by a Google update or not. Let’s say I am very interested in the search visibility for Yelp.com, Coupons.com and Angieslist.com (which I actually am).

The important next step, if I wanted to make money betting on their stock to drop, would be to make sure I’m one of the first people in the world to know about it. Here are a few sources I would use.

The first is the Winners and Losers page from SEMRush which updates on a weekly basis. Please note that this link only works if you are a paid SEMRush user.

You can see from the screenshot that Mashable and the Wall Street Journal have had a bad time recently when it comes to their own search rankings. You could use this page to find publicly traded companies and see if the world has reacted to their traffic drops or not.

Keep in mind that in some cases these drops will not be from any kind of Google update or penalty. For instance, the site listed second there, marchofdimes.com simply changed their domain name to marchofdimes.org hence why the .com lost positions in Google.

Search Metrics is also a great tool to see if your prediction that a certain company has been hit is correct since they offer very reliable “SEO visibility” metrics.

Google CEO Eric Schmidt was once quoted for saying something he probably regrets:

It was recently proven that you could use Google Trends to predict fluctuations in the stock market. Three economists predicted daily price moves in the Dow Jones industrial average.

I can easily look at how many people are directly searching for traded companies, such as AngiesList shown below.

While I as talking about writing this blog post I was sent to a Swedish website which talked about this concept in more detail. You can read it in English here via Google Translate.

If you have a specific list of companies in mind and don’t just want to look at the Dow Jones average or what SEMRush and Search Metrics show you, then there’s one good way to monitor talk about certain brands; Talk Walker Alerts.

Many find this tool to be more useful than Google’s own alerts service.

You can use this to keep you up to date on specific companies being discussed around the web.

The last resource I’m going to recommend is to follow Barry Schwartz on Twitter. If you’re serious about monitoring Google updates then Barry is better than any alerts service. For years he has been my go-to-guy to follow when it comes to search engine news.

As a fun side note, I actually sent Barry a hand-written letter when I was 17 to thank him for some advice he gave me. He blogged about it when he received the letter.

If You Think the Stock Will Tumble, Here’s What to Do

It should come as no surprise to you when I say that I’m not an expert when it comes to trading stocks. In fact I’ve never bought or sold a single stock in my life (though I would like to start). I have spent two years living with Diggy and regularly seen his computer screens full of graphs as he trades Forex but that’s about as close as I’ve come to being involved in trading.

To be clear though, that will be changing. Myself and Diggy have put aside $10,000 to trade companies we think are going to get hit with Google updates and for those who get hit so we can act faster than a typical investor would.

As my own knowledge in this field is limited, I reached out to others with far more knowledge on this subject than me to share their own advice on what they would do if they believed a stock would be falling.

Here was my posing scenario: “I’m an SEO expert. I see that X company (who are publicly traded) are doing something shady with their SEO strategy and I believe they are going to get hit in the next Google Update. As a result I think this will have a huge impact on their stock and it will go down. What would the best kind of trade be that I can make to maximise my potential earnings if I strongly believe this is going to happen in say…the next 60 days.”

“Let’s say you think Ebay’s up to something dodgy and are going to get wiped out during the next Penguin update, that you expect will run next week.

Currently Ebay trades at $51.10 per share. They also seem to have a “support” at around $48, which is basically the point that the share price tends to bounce back up from. The support is usually where ‘value investors’ (people buying for the long-haul) buy in because they think the share’s undervalued.

If the result is catastrophic, the share price could plummet through the support and hit $41, for example. However, if it’s just general bad news it’ll probably go down to $48 temporarily, which is likely a result of a few people panicking, and automated trading systems trading with each other.

So, let’s say you just want to short the share:

Shorting is essentially a trade that involves you “borrowing” someone else’s share, selling it at the current market price, buying it back when it’s cheaper, and then giving it back the share to the original owner. You pocket the difference.

Most trading platforms make shorting available in the click of a button. Often, the owner of the share you’re borrowing from never even knows.

If you shorted 100 shares at $51.10 ($5.1k) and sold at $48 ($4.8k), you’d make $300. Not too exciting.

So a more exotic alternative might be to use spread betting, which is basically where you bet on the share moving in a certain direction i.e. you never actually own the share.

So, let’s say you bet $1 per point that Ebay decreases. If you were super confident (or a bit of an idiot) you could get leverage, allowing you to effectively trade up to $10 per point on credit, but let’s say you don’t.

Ebay decreases 300 points to $48, and again you make $300 (300 points x $1).

Where that’d get interesting is if you bet $5 per point or $10 etc.

IF Ebay dropped to $41 and you had a $5 per point bet, you’d make $5,000.

The important thing to be careful of with both shorting and spread betting is that your risk exposure is unlimited. If you were wrong, and the share doubled in value, you’d not just lose money – you’d owe a lot of money.

There are other really exotic options… but that’s probably a bit OTT for this.”

Diggy of ViperChill fame 😉

“I would suggest using options since this limits the downside risk to whatever you are prepared to lose. If you short the stock with a leveraged account you stand the chance to lose far more than you are comfortable with.

Options also allow you to chose your risk since you have a huge variety of variables you can “bet” on, with time and price action.”

“The best way to take advantage of something like that occurring is to trade options. Sell calls in Ebay, that way if it all goes wrong you can wait out the time expiration and only lose the cost of the option.

If you sell futures in Ebay, you have to set a solid stop at a size that you can afford to lose and which the volatility of the price action dictates.”

“If you come across a company that’s doing spammy SEO and is highly reliant on Google for their web traffic, you might have an opportunity on your hands. (DISCLAIMER: I am not a licensed broker and I am not advising you to do this.) The process would be to trade their company stock in a way that will profit from a downfall. An easy but effective way to do this is to buy a “put option”.

This type of trade gives you to the right (but not the obligation), to sell the company stock asset, at a specified price, on or before a predetermined date. Short selling is another way to profit from a downturn. Good luck!”

I) short-sell. This means you are selling the stock first and buying it later and your profit will be calculated the other way around. So imagine I invest $1,000 in short selling Apple today at the above cost (99.80$) and it goes down to 95$ and I close the short sell. It means I sold it for 99.8 and bought it for 95. It’s a profit. But if it goes up and I want to close the short sell then I have a loss.

There are some problems with short selling:

a) you can lose infinitely. If you buy 100$ of a stock the worst can happen is that it goes to 0 and you lost 100$. But is you short sell and the bitch starts growing a lot that you can lose loads of money. Imagine that it goes to 1000$ – you would have to buy it at 1000$ when you sold it for 100$ in the beginning, so you lost 900$.

b) when you short sell you are not using your money, you are getting a loan from the bank because you are selling something that never belonged to you. So it means that you will be paying interest to the bank during the time you have your short sell active.

c) The bank can put limits to how much it lets the stock go up and force you to close the short. Sometimes you know that a stock will eventually go down but due to “market emotion” it will still go up for a while but you reach the limits from your bank (they need to over their asses) in terms of their trust in you to pay back in case things go south.

II) Put Options

Investopedia explain this very well so I recommend you read what they have to say.”

Miguel shared other insights on trading that were very interesting but weren’t totally relevant to the post. I’m happy to email them to anyone interested.

A huge thanks goes out to Miguel and all of the other contributors here!

Depending on the reaction here this may very well be my last blog post for quite some time so I hope you got a lot out of it and found it interesting. If you did enjoy it or have any type of feedback please do leave a comment.

Wow! I knew that Google Trends could be used to predict stock market trends but I’ve never considered the implications of using google search algorithm updates to predict stark market changes. If it’s clear a company is too reliant on search traffic and a big update is a expected, massive profits could be gained by short selling / buying stock on margin.

This is killer stuff Glen. Your posts are always very thought provoking. I now am thinking about how to write an app that will help predict the correlation between SEO rankings and current stock market. It actually wouldn’t be too hard to plug into the API’s for just the right data..

I never comment, but I love your stuff, so I thought I’d comment to say thanks and to keep things going! Don’t stop posting, just about everything you put out is well worth the read and so much better than the other SEO “news” out there!

Great post Glen. The choice of trading system would depend on your appetite for risk as well as your investment horizon. As you’re looking to gain from the downside then the cheapest way to get this exposure would be through spread bet selling of the stocks. Going into OTC options or even short-selling via a broker is going to cost much more in commission. My bet is that you want the short term gain so spread betting helps you here again with low barriers to exit as well as allowing you to limit losses with a stop loss. As a final bonus, as you’re a Brit, all your profit is tax-free gambling money 🙂

Thanks Glen! You’re like the day trader of the SEO world and one of the few blogs that I look forward to reading. I’m learning how you do some of your research from your articles and thanks for sharing the resources that you use. How long does it take to put one of these article together and how much research did you have to put into it to create an all-action and no fluff piece such as this (or all of your articles I have read so far)?

It’s hard to say exactly but I would guess around 8 hours on and off to put this together. I probably could have done it a little faster. One of the slowest parts is actually reading the post multiple times to check for grammatical and spelling errors before I hit publish.

Marcus Taylor theroy is very good regarding spread betting. However, he failed to mention that if the stock does go against you, you should have something called a “stop loss” in place. This will cut your losses to a minimum is the spread bet goes against you.

If the trade does go in your favour you can then move this stop loss to lock in profits as soon as the stock price moves in your favour.

Hey Glen, did you know that BMW in Germany got de-indexed. Also JC Penney and Overstock both got penalized for engaging in bad SEO? Each time the loses were catastrophic. The BMW brand disappeared from the web in its home market, JC Penney and Overstock almost went into receivership due to the losses suffered in the 3-month period Google punished them!

Might not look like much now but I promise my contribution was killer 😉

Anyway I think the real trick in this is in taking a holistic approach to predicting how and whether or not a company will be affected.

For example, if yelp gets penalized, you would have to consider that a “political decision” that came from the top down for strategic reasons — maybe it’s legitimately about search quality but could also be about some new competitive interest, maybe adwords related, who knows.

So, caveat emptor, I wouldn’t necessarily expect just because one type of website (say, niche sites or local) get penalized for using SEO tactic X that a brand website for a publicly traded company will receive the same treatment.

Analyst downgrading: This is based on many elements, the main one being that they see the medium to long term decline in real value of the asset due to a myriad of factors. The factor highlighted in this post being decline in MT/LT revenue/profit as a result of a Google slap in the face of page ranking.

Q: How reliant is the entity on search traffic to generate revenue? Survey Monkey would be hit to a lesser degree as they rely on annuity income (subscriptions), online retailers who aren’t eBay or Amazon would be affected more as they rely more on traffic as potential customers search online for bargains/best price.

Q: How quickly are these entities able to react and correct their bad SEO practices to regain their rank? Maybe this point doesn’t really apply as a swift trader would have already capitalised on the market’s overreaction before the stock normalised.

Q: Is it likely that these sites could pre-empt the Google downgrade and signal to the market/analysts that they are able to rectify the downgrade within a reasonable time frame?

For number 2 you also have to keep in mind that it may not be up to them. Any penalties that come from a Google update could take months to show they’re ‘fixed’ even if you’ve fixed them on your site and your backlink profile. Simply because you have to wait for Google to refresh the data and signals they’re looking for.

For the last one: Only if they know they’re doing something shady or are very sure when a GOogle update is going to happen. Google aren’t very open about when these updates take place.

Back before I did SEO full time, I was a freelance writer for Livestrong.com. They’re owned by Demand Media, a publicly traded company that also owns big content farms like eHow.

Anyway, Panda 1.0 pretty much wiped them out…and their stock followed suit a few weeks later. But there was a 6-8 week gap between “Panda” and “stock crash” where I could have shorted them and cleaned up. This was 4-years ago and the possibility never crossed my mind until today. Amazing stuff man!

Glen, I think you’ve outdone yourself with this one. This post is absolutely superb, even by ViperChill standards. 🙂

The bit about the RapGenius outing of the SERPs was quite interesting (here’s the link to that initial post 9 months ago, just in case anyone wants it –> http://jmarbach.com/rapgenius-growth-hack-exposed). It just goes to show that practically anything can happen when you get in touch with the right people.

Your broadcast email said that this post might be the last one for a while. I’ve only got one word to say:

NOOOO!

Cheers,
Jonathan

P.S. Kudos to you for reaching out to all those people for their input. I found Marcus’s stuff particularly interesting.

“Before I continue I want to say that I’m not advocating you attempt to out companies in order to affect their stock market pricing. However, certain rumors I’ve heard for a few years do suggest that there are people who partake in this exact strategy. ”

As a day traders for around 9 years, I’ve seen most things… You couldn’t emphasize the point above enough. Be VERY careful if you do anything that might affect a company’s share price, especially when you have a position (short or long) unless you want the SEC / FINRA coming after you.

If you publicise an opinion based on publicly available information (like search engine trafic) it’s not an issue. Maybe in some countries you would disclose that you are long/short on a given stock, but there is no penalty in sharing opinions!

If this would be true, everyone that writes on Forbes, WSJ or appears on CNBC would be under a rest…

Day trading without a lot of knowledge is just gambling. If you want closer to a sure thing and you have a long time-horizon (20-30+ years) just put it all in total market index funds, maximize your use of tax advantaged accounts like 401k (especially with company match) and IRAs. If you max out both of these each year and still have extra money, you can set aside some of the extra for “gambling” like the type of high risk plays described in this article, but you shouldn’t even be considering this unless you have solid net-worth in safer investments for retirement already and can afford to lose (especially margin plays like shorting where your down-side exposure is unlimited).

That being said, the concepts in the article are interesting – just don’t put all your eggs in one basket in a high-risk trading play. I’m not concerned about Glenn playing with $10k, but others who’s entire savings is $30k or less could get burned badly.

Very interesting post. I manage the money of a family office in Lake Tahoe, Nevada and would like to hire someone either part-time or full-time who may be able to model this idea more fully. I would trade real money with it and combine it with other models we are currently trading with. If you have this interest/talent please contact me via email.

As a former trader turned SEO this is something I have been increasingly interested in.

If I was to go about trading on the back of SEO info then I would look to set up tracking for the sites you know have a large exposure to organic traffic and look likely to get negatively affected by a future update.

It would be very risky to short stock and wait for a negative update/ manual pen as you just don’t know when this might happen if it ever does and if the company does well in the mean time you would likely have to stop out and take a loss.

It would make more sense to set up an alert for a significant loss in search visibility and an auto sell order for the stock if/when this occurs. You may lose a few initial ticks but are still highly likely to catch a good chunk of any resulting falls and cash in. I would also do all I could to publicise the loss of rankings once you are short to maximize the panic selling and your own profits.

I rekon this would also work in reverse by buying stock of companies who are growing in search visibility and doing high grade SEO.

What is even more interesting is the ability of individuals to directly influence stock prices by doing things like negative SEO or DDOSing a site to make big profits. I’m sure it has already been done and I know there are a growing number of hedge funds trading on the back of this sort of info.

Great post. I’ve thought about this for a while actually. I agree that it seems the more companies that rely heavily on organic search, the more apparent the correlation with the stock market seems to be.

Check out AO World PLC, apparently their site receives ~27% in organic traffic (alexa). Compare their price since they were floated this year with their search visibility & there is relatively strong correlation. Similarweb shows a similar story.

@Jamie, You would want to buy puts. With shorting your down-side exposure is unlimited. You can get burned pretty bad if you don’t know what you are doing.

The long put option strategy is a basic strategy in options trading where the investor buys put options with the belief that the price of the underlying security will go significantly below the striking price before the expiration date.

Compared to short selling the stock, it is more convenient to bet against a stock by purchasing put options as the investor does not have to borrow the stock to short. Additionally, the risk is capped to the premium paid for the put options, as opposed to unlimited risk when short selling the underlying stock outright.

I’m curious as to why you wouldn’t look at historical data to come up with your list. I’m not sure that it is important to know anything about the company’s Google ranking if their stock shows a pattern of change that correlates with Google updates.

You can if you want to. Retail Me Not are a good example of a company that are affected by Google updates.

eBay, in part, or another.

If you read some comments above people have been able to correlate stock changes with penalties they’ve found on other companies too.

There’s really no doubt in my mind that a huge traffic hit to Yelp or Coupons.com or Zalando or Homeshop 18 would not affect their stock price so you really don’t need to go back in time to consider taking action if that event were to occur.

interesting. But isn’t that an even bigger reason to short sell it now?

This is because Zillow will probably be clever enough to check trafic stats and run away or offer a low price that current Trulia owners would not accept. So when they go away, the stock would in theory drop twice
1 – because the purchase did not happen AND
2 – when the low trafic is found out or it gets reflected in lower sales/profit on the financial reports

I have been following your blog for a while now, even after reading your piece on SALE, I went ahead and bought some call options ahead of the earning report last month, I took a contrarian side of that trade because the whole street was expecting the earning to disappoint, I believed the CEO when he said the effect of GOOG algorithm change to their business was minimal and grossly exergorated, needless to say I lost 97% of that investment.

Best way to maximize an anticipated move in stock price is to buy put option. For most equity option a 10-20% change in stock price equates to 200 – 400% options return ( simple call or put).

Note of caution: option is not for trading novice you can lose 100% of your investment in a heart beat. Good news is that with put, put spread etc your loss is limited to the invested amount.

I have been myself a day trader for a couple of years, so let me throw in my 2 cnts.

Although your thought is interesting, the real question is, will you get your trade in at the right time?

Let’s analyze what MIGHT happen:

1. Google announces a slap. (I suppose here that there is no leak beforehand which is already a dangerous supposition on itself).

Now you have 2 options:

2a. IMMEDIATELY, within seconds, at the announcement you put in your short (or a put option). Notice that the risk at this moment is still pretty high , because you haven’t detected any real stock movement or negative impact with your SEO analysis. You have only SUPPOSED what will happen.

3. At the same time, this news will spread like wildfire internally in the companies that are at risk. The INSIDERS (stock holders, company ceo’s, employees) will start offloading their stock (if they are convinced that this slap will indeed penalize their company).

4. The stock will start tanking. This may happen in minutes after the announcement. And because it starts tanking, outsiders will jump on the bandwagon and short the stock. And the stock will tank even more.

Now if you had chosen 2a. you can indeed make a bundle. But the risk is pretty high. If you have opted for option 2b, it is very likely that you’re too late. The negative SEO effects will become apparent only hours, if not days, AFTER the stock starts tanking.

Furthermore, notice that analysts analyze ALL numbers that may have an impact on the stock for that company. For a car manufacturer that would be: nr of cars sold every day, any accident reported for this brand, any change in management, etc.etc.

For a company that heavily (or uniquely) relies on an internet site, this would be : Nr of visitors, downtime, any article published on that company, stock buying/selling by large stock holders (owners), and this on a daily, if not hourly basis.

Now if your intention is to use 2a. because your really convinced that your analysis will hold, why wait for a Google slap? In that case you better put your short in even BEFORE the slap is announced (= NOW).

So give it a try but be aware of the risk.

About the specific setup: I would NEVER advice a newcomer to start trading with options (be it a put or a call). I would setup a short with a stop above it in case the stock goes up and with a a trailing buy to follow the stock and lock in the profits as soon as the stock starts tanking.

As a follow up on my own post here, I looked in detail at some charts of the companies mentioned here. If you look at retailmenot, you can see that at the panda 4 update (19 May), nothing happened on this stock. If you had steeped in with a short or a put, you probably would have been stopped out the next day, because the stock went UP….

If you look further down the chart, there was a major move on 5th of August. Why? I don’t know really because I haven’t investigated a lot deeper, but…. 6th of August there was an http/ssl update from Google. Is one related to the other? I don’t know, because I have no idea how this update might have umpacted their site. But IF there is some relation between these two events, it shows that some people where already aware of the upcoming news BEFORE the actual announcement.

As you mention in your post “I want to make sure that I’m one of the first ones to know”. And indeed, if you can get somehow inside information before anyone else, that will greatly help you with any trade. For example, if you have an insider at Google that tells you one or two days before an actual announcement what they are going to announce, you could profit from a move like the one that happened on August 5 with retailmenot.

Had you stepped in at the anouncement date, it would already have been too late.

As you correctly pointed out, this doesn’t seem to work for all heavily internet traffic related sites. Indeed, if you look at YELP, their stock only seems to go up, despite the various Google updates that have been applied.

Let us know how it goes, because, despite the fact that I’ve stopped trading, I still find it a fascinating activity. But I have learned that stock trading is like a game of chess, with the only difference that you are not playing with 32 pieces, but 32 million. And not against 1 opponent, but a million. So you have to be REALLY smart to outsmart all the others…

thank you for the research and the insights. Great job as always.
I suggest you to keep an eye on Zalando during the following weeks/months. It could be a good candidate 😉

Via Reuters:
“Three financial sources said Zalando would close the books for the IPO one or two days earlier than planned as it is already oversubscribed.
Zalando, which had been expected to list on the Frankfurt exchange on Oct. 1, declined to comment.
In an indication of robust demand, Zalando shares are already trading in the grey market well above the 18.00 to 22.50 euros per share price range set last week.”

This is definitely food for thought….Glen I’ve noticed that in almost 80% of your articles you have a tendency to be devilish…for example:

“Could I Help to Get a Company Penalised If I Tried?”

That part of your post is a long way from the title of your post:

“SEO and the Stock Market: How to Profit from Google Penalties”

Is there a subliminal message going on there….lol….

The research involved with SEO and the stock market if one were to pursue this would be incredible!!….the learning curve would be great for some one who did not have the resources you have….I can read Greek but do I know or understand what I am reading!….you get my point…the idea is truly a smart one…it dosen’t seem to be an original one based on some of the comments…but the learning curve involved…what would you say the time it would take (on your best guesstimate) for some one who has never traded stock…or…who dosen’t know how to evaluate Google trends (at the most basic level)….the person is not a dummy but let’s say is intelligent enough to learn at a moderate pace….and has a beginning level of SEO….I’m really don’t expect you to answer that because we all absorb and maintain what we learn at a different pace and a different level….but I personally think that someone attempting to learn this on their own is possible, but the time and the effort it would take….well that’s another story….and one more thing….$10k to just use to research and play with….for me that’s a huge WOW!!!!….maybe when I reach that level I will probaly revist this again or who knows maybe you just might have a lottery and take on some one just to help them and show them how to do what you and Diggy do…I do feel this about you…you definitly lead in the right direction…

stop blogging if you have to but only temporarily (like one month..lol)

Loved to read this beautiful write up-Both seo and stock market comes with risk and if you are into it you have the capability to handle the loss and move towards profit with your intelligent tactics ,,Thanks for a lovable post to guide seo